Why Nations Fail. Daron Acemoglu and James A Robinson.

United States of America: Crown

Publishers, 2012. 528.

Reviewed by Maria Ben

The book ‘Why Nations Fail’ written by, Daron Acemoglu and James A Robinson, provides

an analysis of the growth trajectory of nations and its direct correlation to the strength of its

institutions. The book provides a holistic and powerful way of comparing economic developments

across countries and seeking a way to think about these differences. The authors argue that inorder to

understand why nations fail and to explain world inequality it is necessary to understand the politics

that led to such an economic outcome1. The book attributes the cross country differences in income

per capita, life expectancy, development outcomes and education patterns to the structure and strength

of institutions established in countries.

By dismissing the earlier hypotheses developed by other renowned economists who tried to

explain that wealth inequality was created by geographical disadvantages2, cultural backwardness3 or

failed policy making4, the authors lay emphasis to the theory that central to nations failing is the

failure of their institutions.

The authors hold institutions as the central element of progress in a country which can be of

two types: extractive or inclusive depending on their attitude towards private property (capitalist vs

socialist), market structure (free markets vs monopoly), systems for innovation, and equitable wealth

distribution.

Extractive political institutions which were absolutist in nature and concentrated power in the

hands of few without checks and balances or rule of law facilitated the creation of extractive

1
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 68 ;
Crown Publishers, 2012.
2
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 51 ;
Crown Publishers, 2012
3
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 62 ;
Crown Publishers, 2012
4
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 65 ;
Crown Publishers, 2012
economic institutions where those in power extracted resources from rest of the society5.Whereas,

inclusive political institutions which promoted the rule of law and a system of checks and balances led

to the creation of inclusive economic institutions creating an incentive of growth for all and promoting

innovation and entrepreneurship6.

Moreover, extractive regimes did not allow for technological innovation due to threat of political

disruption. Extractive regimes are also politically centralized which gave its rulers sufficient power to

block and disrupt things that could destabilize their regimes7. Moreover, since the media in such

regimes is under state control it is often impossible to mobilise masses against the undoings of those

in power. Thus, adaptation of new technology is highly controlled by extractive regimes as it could

lead to creative destruction which could alter the existing state of affairs by causing massive

unemployment and public outrage dethroning the rulers. Creative destruction could also generate

groups competing for power against ruling elites who could lose their exclusive economic and

financial authority8.This was a key reason why despite of potential findings and discoveries that could

transcend existing state of economies, the process of Industrial revolution was delayed.

To explain why in the current state of the world certain countries are better off than the rest,

the authors link this to the process of industrialisation and technological changes that occurred during

the Industrial revolution which allowed for a market economy based on free and fair trade9. Countries

that benefited from the industrial revolution had inclusive institutions in place that enabled them to

adopt its benefits.

The authors have been able to extend their theory to over fifty plus nations of the world and

shown how institutions altered the growth trajectory of these nations. The political institutions

5
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 76 ;
Crown Publishers, 2012.
6
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 77 ;
Crown Publishers, 2012.
7
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 81 ;
Crown Publishers, 2012.
8
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 171 ;
Crown Publishers, 2012.
9
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 301 ;
Crown Publishers, 2012.
determined how economic institutions were shaped and inturn these created economic incentives,

influenced people’s incentives for education, fostered a habit of savings and investments, nurtured

innovations, technological advancements and so on10. Acemoglu and Robinson try to cover events in

the past 600 years of human history and come up with a very compelling theory to support their

claims. They provide examples ranging from the neolithic revolution to the Mayan Age to the

breakdown of Feudalism, emergence of industrial revolution, the American civil war, the Chinese

revolution, disintegration of Soviet Union and much more to prove their point.

According to the authors countries like Britain, America and Australia are succesful because

of the strength of their institutions, whereas majority of African as well as Asian and Latin American

economies are failures as a result of their failed institutions. The American success is explained by the

development of their inclusive economic institutions post civil war that helped boost economic

activity, productivity growth and economic prosperity. Moreover, the institutions in these success

models ensured that strong systems would be in place that incentivised people to be creative and

rewarded entrepreneurship. For instance, secure property rights, patent laws, public infrastructure,

better schooling system, roads and transport systems, relaxed taxes, friendly and a secure business

environment that prevented theft and fraud are all contibuting factors to this11.

Although the book provides evidence to support its central thesis, the book does not live up to

its claims of having developed one broad framework to analyse why countries are rich or poor. While

countries are so diverse and varied, the authors have cherry picked a few countries to fit them into the

framework they developed supporting their central thesis. As we broaden the scope of nations their

thesis proves to be inadequate to explain income differences amongst countries. Moreover, they

completely ignore studies which have provided empirical data to prove the correlation of other factors

in determining the success or failure of nations. For instance Fig 1.1 shows the correlation between

access to sea and variation in income levels across countries. While Acemoglu and Robinson might

10
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 372;
Crown Publishers, 2012.
11
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 47;
Crown Publishers, 2012.
argue that this cannot explain the intercontinental variation in income, at the same time the fact that

some countries benefitted due to their geographical location cannot be ignored. While stronger

political institutions could have fostered growth in European countries, when compared to countries in

the Africa that were landlocked and did not have access to ports or trade routes, European countries

have certainly benefitted from the geographical positioning.

Fig 1.1 12

Apart from

this, every economic problem could have a political angle and every political problem has an

economic angle to it depending on how issues are perceived. Thus, its more like a chicken and egg

problem and its impractical to hold one thing as the singular determinant of having contributed to the

other.

The categorisation of institutions as ‘extractive’ also seems very vague and ambiguos. By the logic of

the authors the present day North Korea, Robert Mugabe’s Zimbabwe and contemporary China,

warstricken Afghanistan and even India are all home to extractive institutions13. However, this theory

12 Weil David N, “Geography, Climate and Resources”. Economic Growth, Routledge; 2013

13
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 450;
Crown Publishers, 2012.
is inherently problematic as any failure in any country could then be attributed to the presence of

extractive institutions. Instead of giving anecdotal evidence the authors should have probably

provided empirical evidence across countries to prove their claim.When they attribute causality to

extractive institutions it seems to be a very broad concept which at places encompasses the cultural

and ignorance hypothesis.

The book also argues that the United States provided for institutions that could help people like Bill

Gates or Edison to emerge successful14. However, it isn’t particularly true. Parallel to the time when

Edison took off successfully there were other talented scientists like Nikola Tesla who couldn’t

succeed because of lack of funding from American capitalists. Major innovations in the United States

that took place be it development of electricity, coal or kerosene were funded by monopolists like

Rockefeller, Andrew Carnegie and JP Morgan as they saw in it potential to amass extreme amounts of

wealth15. Thus, it draws from the Romer model which emphasized that technological progress

happened as a result of monopolist action and this inturn fuelled economic growth and boosted the

GDP of the United States. Thus, analysing economic growth from a solely political perspective is

inadequate.

Acemoglu and Robinson have at places used extremely unbeleivable and unscientific evidence to

make their arguments. For instance, they argue that the fear of creative destruction prevented the

discovery of unbreakable glass from taking off during the reign of ancient ruler Tiberius16. The

authors could have tried coming up with more convincing evidence.

The case of Africa cannot entirely be explained by its weak institutions. A plausible alternative

explanation for the poverty in sub-Saharan nations is geography. The region has low population

densities before the 20th century, high prevalence of disease, lack of navigable rivers for

14
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 43;
Crown Publishers, 2012.
15 History. “The Men Who Built America.” YouTube video, March 28th 2019. https://www.history.com/shows/men-who-

built-america
16
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 159;
Crown Publishers, 2012.
transportation, scarce rainfall, and shortage of coal to take advantage of the age of steamships (2012,

p. 145)

The book also has an inherent bias towards America and its institutions while countries like China are

portrayed to be on the wrong growth trajectory fuelled by extractive institutions which will soon die

out17.

In conclusion, the book is a good read to understand the close reations and ties between economics

and politics but it fails to live up to its promises of providing a single comprehensive theory to

understand what determines economic growth in countries.

17
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New York :Profile. Pg 427;
Crown Publishers, 2012.
Citations-
Acemoglu, Daron. Why Nations Fail : the Origins of Power, Prosperity and Poverty. London : New
York :Profile.; Crown Publishers, 2012.
History. “The Men Who Built America.” YouTube video, March 28th 2019.
https://www.history.com/shows/men-who-built-america
Weil David N, “Geography, Climate and Resources”. Economic Growth, Routledge; 2013